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Economic Minute #7: The Growth that doesn’t Satisfy

by Andrew White  |  March 18, 2015  |  2 Comments

Recent news suggest the U.S. economy is recovering.  The lead headline article in the WSJ weekend edition March 7-8 noted, “Brisk Jobs Growth Puts Fed on Notice“.  This was in reference payroll data showing improvement in employment: now 12 consecutive months of more than 200,000 jobs have been added to the economy.  The “on notice” refers to the Fed’s stated policy of pending interest rate increase once the economy is more stable.  The stock market is resilient; the dollar strong.  But all is not well in the garden.  Two other data points suggest we are not out of the woods yet.

A smaller headline in the same front page read, “Sluggish Productivity Hampers Wage Gains“.  Inside the front page was, “Trade Gap Shrinks Amid Cheaper Oil“.  The first article should be studied hard.  Employment growth without increased productivity will not push GDP past the meager 1-1.5% range we are experiencing and will only support low growth that keeps the middle class in check.  The second article suggests that long term trends remain in place and show little sign of changing.

Productivity is more important than job growth, all other things being equal.  Even with the same workforce a growth in productivity should lead to eventual increased reward for investor and worker alike, even if at different rates.  That would eventually lead to increase in demand and thus new capital investment and new hiring.  A growth in employment alone, not funded by productivity improvements, is OK but there won’t be the same level of increased demand or “multiplier”.  It is productivity that allows us to get more out of the system than we put in, and to grow disproportionately compared to employment.

Unfortunately the article highlights the sorry state of affairs when it comes to productivity.  And the role of IT in this conversation is critical.  It is through the smarter use of IT that firms, and ultimately industries, achieve an advantage and can grow faster than others.  This is the kind of behavior we need to see in the data to argue that economic growth will accelerate.

So why the continued poor productivity results?  One reason is the slaughtering of the financial system.  Though we know there were bad apples in the financial industry the increased regulation, some still being written as we go, has turned that industry upside down.  Banks, once responsible for funding the next great innovation, find it hard to make money on such loans today.  Worse, increased capital requirements continue to erode any chance this behavior will change.  The Economist last week included an article titles, “A World of Pain: The giants of global finance are in trouble“.

I don’t mean to imply that we should let the bad apples off.  Surely there are bad apples in every industry.  It’s just that we are killing the golden goose and then complaining about the results.  But there is hope.  Human ingenuity may yet trump socialist ineptitude for picking winners and losers.  Some firms are still able to determine a productivity growth plan.  In the WSJ article firms like Campbell Soup and Macy’s reported plans to increase their capital budgets.  The question then is “Are there enough of such firms to negate the governments chains?”  We need to see private investment in innovation and R&D to increase to see the answer to this question.

The smaller article reporting the narrowing trade gap suggests positive news.  And yes, a slowing trade gap is good.  But here is the issue I see.  We are coming out of a recessionary and are now in a slow-growth period.  We didn’t not even see a trade surplus in that period.  There is a long cycle here that continues to bode poorly for all.

Since sometime in the 1960’s the U.S. has been trading at a loss.  Since this period we have funded our overall economic, and government, growth less by trade (products and services exports over imports) and more with debt.  This has created a trade imbalance with China, for example. At the same time China, filled with dollar reserves, then acquired a large amount of US debt.  This is why some economists say that China has funded US spending: they own a sizable investment in dollar denominated debt and reserves.  The mirror situation occurred with Britain after WWII.  Commonwealth and other nations owned a large amount of sterling that Britain did not want in the market (buying dollars), as sterling would have crashed and brought economic ruin to what was then a debtor nation.  The two World Wars accelerated the shift from creditor to debtor nation that was already economically and trade-wise under way since the late nineteenth century.

That imbalance we never averted and disaster ensued in terms of empire, sterling’s role as reserve currency, and eventually Britain’s place in the world.  Empire was no longer affordable; global trade was decimated; much later manufacturing was gutted.  It was only the services sector (and primarily financial services at that) that provided any real meaningful growth in the 1980-90’s.

So the US economy continues to face strong headwinds in the shape of intractable trade patterns and imbalances; meager growth hampered by lack of any noticeable productivity growth.  One saving grace is in fact that the US does not really need “global” trade to grow per se – it is large enough it can trade its own way into growth – if it had productivity improvements.  Global trade is only important in that it drives dollar balances with central banks around the world, this assures the US government can then fund its debt.

If ever there was a time for IT to step up, and step out from the crowd, it is now.  The U.S. has a huge opportunity.  It leads the world in many areas of true innovation and invention, and it does possess a developed, relatively homogenized market.  We just need to hunker down and prioritize the most useful, value- yielding information and technology based innovations.  If we can all be like Campbell’s and Macy’s, maybe we can improve on what we leave behind for our children.  The world will be thankful and they will, again, ride the American coat tails.

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Category: economic-growth  economic-history  economic-productivity  economy  global-economy  global-trade  globalization  us-dollar  

Andrew White
Research VP
8 years at Gartner
22 years IT industry

Andrew White is a Distinguished Analyst and VP. His roles include Chief of Research and Content Lead for Data and Analytics. His main research focus is data and analytics strategy, platforms, and governance. Read Full Bio


Thoughts on Economic Minute #7: The Growth that doesn’t Satisfy


  1. […] blogged yesterday (See Economic Minute #7: The Growth that Doesn’t Satisfy)  concerning the current US “secular stagnation” and I conclude that I believe it […]

  2. […] only the other day about the importance of productivity over employment to the U.S. economy (see Economic Minute #7: The Growth that Doesn’t Satisfy), I noted with some humble pie the exact same argument, but for the UK, in this week’s US […]



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